How are Stock Prices Affected by the Location of Trade?

23 Pages Posted: 6 Sep 2000 Last revised: 18 Dec 2022

See all articles by Kenneth Froot

Kenneth Froot

Harvard University Graduate School of Business; National Bureau of Economic Research (NBER)

Emile Dabora

CS First Boston

Multiple version iconThere are 2 versions of this paper

Date Written: May 1998


We examine pairs of large, Siamese twin' companies whose stocks are traded around the world but have different trading and ownership habitats. Twins pool their cashflows so, with integrated markets, twin stocks should move together. In contrast, the relative prices of twin stocks appear correlated with the markets where they are traded most, i.e., a twin's relative price rises when the market on which it is relatively intensively traded rises. We examine several explanations for this phenomenon: discretionary uses of dividend income by parent companies; differences in parent expenditures; voting rights issues; currency fluctuations; ex-dividend-date timing issues; and tax-induced investor heterogeneity. Only that latter hypothesis can explain some (but not all) of the facts. Other possible explanations include: i) country-specific sentiment shocks affect share price movements of locally-traded stocks in proportion to their local trading/ownership intensity, and ii) investors are rational, but markets are segmented by frictions other than international transactions costs, such as agency problems.

Suggested Citation

Froot, Kenneth and Dabora, Emile, How are Stock Prices Affected by the Location of Trade? (May 1998). NBER Working Paper No. w6572, Available at SSRN:

Kenneth Froot (Contact Author)

Harvard University Graduate School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Emile Dabora

CS First Boston ( email )

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